What is an administration order?
When a company faces serious financial pressure, it may need legal protection while restructuring or finding a way forward. UK insolvency law provides several mechanisms to help companies in this situation, such as administration.
An administration order is a court-granted document that formally places a company into administration. Once the order is issued, control of the company passes to an appointed administrator, who is responsible for managing the business and addressing its financial difficulties.
Understanding how an administration order works can help directors and stakeholders recognise what happens when a company goes into administration and what the process is designed to achieve.
Understanding an administrative order
An administration order is a court-issued document that confirms a company has been placed into administration. When the court grants the order, it appoints a licensed Insolvency Practitioner as the company’s administrator. From that point onwards, the administrator takes control of the company’s affairs, business and assets.
Administrations give a financially distressed companies breathing space while an independent professional reviews its situation and decides on the best course of action, to achieve certain objectives. In many cases, the goal is to rescue the company as a going concern. If that isn’t possible, the administrator will aim to achieve a better outcome for creditors than immediate liquidation would deliver.
What happens when an administration order is granted?
Once an administration order has been issued, the administrator assumes full responsibility for managing the company. This typically includes:
- Assessing the company’s financial position
- Reviewing assets, liabilities and ongoing contracts
- Managing day-to-day business operations where necessary
- Developing a strategy to resolve the company’s financial difficulties.
This may involve restructuring the business, selling parts of the company or arranging a sale of the business as a whole. During this period, directors no longer have control over the company’s decision-making. Instead, the administrator acts in creditors’ interests and explores ways to preserve value.
Protection from creditor action
One of the key features of administration is the legal protection it provides. Once a company enters administration under a court order, it is protected from creditor action. Creditors generally cannot commence or continue legal action against the company without the administrator’s consent or the court’s permission. This protection is known as a statutory moratorium.
The moratorium prevents creditors from taking immediate enforcement action, such as issuing winding-up petitions or pursuing legal claims. This pause allows the administrator time to stabilise the business and review potential recovery options.
The objectives of administration
Administration is designed to achieve one of three main outcomes. These objectives are set out in UK insolvency legislation and are considered in order of priority:
- Rescuing the company as a going concern
- Achieving a better result for creditors than immediate liquidation
- Realising company assets in order to repay secured or preferential creditors
The administrator will evaluate which of these objectives is realistically achievable based on the company’s financial position and prospects.
What happens after administration begins?
Once appointed, the administrator investigates the company’s financial situation and prepares proposals outlining how the administration will proceed.
These proposals are shared with creditors, who can review and vote on them. The administrator then carries out the agreed strategy, which may involve restructuring the business, selling assets or arranging a sale of the company.
Administration can sometimes result in the business continuing under new ownership, while in other cases it may lead to an orderly wind-down of operations.
Looking for administration advice?
If your company is facing financial difficulties and you want to take early action, then speak to one of our friendly Insolvency Practitioners for initial free advice.
Our team at Bridge Newland can discuss your options with you and help you achieve the best possible outcome. Get in touch with us today.
Categorised in: Administration News
